TDS Wants $3 A Participant For A Payroll Slot
Below is a letter sent to TIAA-CREF from Tax Deferred Services on August 12th which includes a copy of a "Vendor Services Agreement." Keep in mind that on several occasions, CalSTRS called TDS and spoke with them asking for a copy of the Vendor Services Agreement and were told that one did not exist. The entire time, they had already sent one to the record-keeper of Pension2 (full disclosure: I work as a consultant for CalSTRS). There are some frightening things in this Vendor Services Agreement and some frightening things that were left out.
The strangest provision is number four, which states:
"In consideration for making Vendor's financial products available to Plan Participants and providing the Services defined above, Vendor agrees to pay the Plan Administrator $3 per month for each Plan Participant who contributes to one or more of Vendor's financial products through a payroll deduction processed by the Plan Administrator."
First, "in consideration" implies that the $3 fee is a fee that is charged for a payroll slot. The vendor must pay consideration in order for their products to made "available to Plan Participants." This is a no-no in California, see my previous post.
Secondly, TDS wants this "consideration" for "providing the Services defined above," those services "above" include only the following:
1. Accepting premiums (contributions) from the employer on behalf of the employee
2. Remitting said premiums (contributions) from the employer to the Vendor
3. Review those premiums (contributions) for compliance (in other words, making sure they don't over-contribute)
To sum up the "services" offered for $3 per month, the vendor is paying ONLY for common remitting of funds. That seems a bit out of whack to me considering the current going rate for FULL SERVICE COMPLIANCE in California is about $2 per participant.
No where in the letter does TDS state they will provide full service compliance to the district and in no place do they ask the vendor to "share information" which is necessary and required in order to do actual compliance. Is this letter and agreement an admission by TDS that they don't actually do compliance (real compliance)? It would appear so.
In addition, the letter doesn't say with what employers this agreement applies, nor does it show any documentation that any of the employers have in fact authorized TDS to collect this fee on their behalf.
Who is in charge over there anyway?
This is scary stuff, in an age where school districts need competent TPA's to ensure compliance they are getting something that is far less.
As an employer, would you authorize an entity who not only charges $3 per head for common remitting only (the letter apparently proves this) but then also solicits your employees for 403(b) and 457(b) product sales that produce commission for TDS and the reps they employ? I can tell you this, in an ERISA world - this would not fly.
Scott Dauenhauer CFP, MSFP, AIF
TDS Vendor Agreement